Saturday, June 23, 2012

Xstrata to draw back in PNG for South America focus

By BARRY FITZGERALD by: Barry Fitzgerald

From: The Australian

XSTRATA'S full development book in South American copper has promptedthe proposed merger partner of Swiss-based Glencore to seek buyers for its 81.82 per cent stake in Papua New Guinea's Frieda River copper-gold project, one of the world's biggest undeveloped deposits of the metals.

The stake could be worth more than $US650 million ($639m).

News of the sale was let slip by its 18.18 per cent junior partner inthe project, ASX-listed Highlands Pacific, as part of its "cleansing statement" ahead of an expected 15 per cent placement to the PNG
Sustainable Development Program, which holds BHP Billiton's former 52 per cent stake in the environmentally controversial Ok Tedi copper-gold mine.

Xstrata was caught on the hop by Highland's disclosure to the ASX, butlater confirmed that part of its continuous review process was "assessing the interest of other investors in the Frieda River
project".

That confirmation follows industry speculation Xstrata had beenapproaching state-owned Chinese groups with a view to gauging their interest in taking up the running at Frieda River, but to no avail.
The sale process has since firmed up with the appointment of Merrill Lynch to advise on a trade sale.

Frieda River ranks as a 13 million tonne copper deposit, with 20million ounces of gold.

The partners have been working towards a development that be theworld's 12th-biggest copper producer, with forecast annual average output in the first eight years of 246,000 tonnes of copper and
380,000 ounces of gold.

Despite the possible sale of Frieda River, Xstrata is out to climb theranks of global copper producers by increasing annual production by more than 60 per cent to 1.5 million tonnes over three years.

Peruvian projects Antapaccay and Las Bambas underpin the surge.
Xstrata has coasted its copper production surge at $US7 billion.

Xstrata's 81.82 per cent stake in Frieda River is based on completionof a feasibility study on its development by the end of the year.

If it sells or joint-ventures the asset before then, Highlands has a pre-emptive right to increase its interest to 28 per cent.

Analysts said a valuation metric of US3c-US4c a pound of (undeveloped)copper would make Xstrata's share of Frieda River worth about $US650m-$US850m.

If Highlands were to revert to a 28 per cent stake, its holding wouldbe worth $US250m-$US340m on the same basis.

That has implications for the valuation of Highlands, as its marketcapitalisation was $100m before its trading was halted.

Highlands' expected placement to the PNG Sustainable Development Program is to raise funds to step up exploration at its Star Mountains tenements, 20km from Ok Tedi, which needs extra resources to extend its mine's
life.

Xstrata's sale process for Frieda River does not extend to its jointventure in the equally big Tampakan copper-gold project in the southern Philippines.

Xstrata owns 62.5 per cent and ASX-listed Indophil 37.5 per cent.

The partners are waiting on the Philippines government to deliver itslong-awaited mining policy, expected by next week, and the removal of a provincial open-cut mining ban

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